The Economics of Gambling

Gambling carries a wide array of descriptions but one caught my eye. Business dictionary defines gambling as betting (wagering) that must result either in a gain or a loss. It is neither risk-taking in the sense of speculation (assumption of substantial short-term risk) nor investing (acquiring property or assets for securing long-term capital gains). In other words betting requires three elements to be present for its very existence; consideration, chance and a prize.

This activity has come of age in Africa and more so in Kenya with the rise of sports betting sites like Sportpesa, mCheza and many more. This activity has found its way even in our very neighborhoods where gaming machines are cutting out their niche in this vast industry. Gambling has an all inclusive face in the sense that it is no longer perceived as an activity of the elite.

Governments response to gambling vary dramatically across nations. With the increasing popularity of online gambling platforms, they are easily accessible at all time and therefore government policy seems to make little difference to the determined gambler. However, a look at other developed economies where gambling has thrived can teach Kenya a thing or two about just how much this industry can contribute to the economy.

The American Gambling Association commissioned an economic impact report on the industry’s importance to the US economy and the numbers therein is mind-boggling. In 2013, this industry had a direct employment contribution of 570,000 people with total jobs impact of close to 1.7 million people. Revenues generated stood at USD 81 Billion inclusive of USD 30 billion from Native American Casinos.

USD 38 billion in taxes were religiously paid. All that has a total direct economic impact of USD 102 billion and if general spending in the general economy is factored in, then the total impact comes to a whooping USD 240 billion. The most industry finding from this report was the fact that labor income surpassed its pre-recession peak and hitting USD 25.5 billion and consumer spending hitting an all time high of USD 67 billion.

A survey that was done by H2 Gambling Capital reveals how certain economies generate revenues for their governments. Spain is one country where sports betting is the ultimate gamblers weak spot and approximately 60%-65% of bids on the grey market goes towards sports betting. This being public knowledge, the government imposes 20% tax on lottery prizes over 2500 Euros

In Norway, gambling is largely considered illegal and the industry is closely monitored by the government with only two companies ; Norsk Tipping and Norsk Rskstoto allowed to offer betting and gambling services to Norwegians. Their government in 2010 also introduced laws that make it obligatory for Norwegian Banks to deny their customers all use of their bank cards at casino operators all over the world.

Hong Kong on the other hand, provides social gambling in authorized and regulated outlets. It is only considered legal if it is done through the jockey club that allows betting on horse racing, football matches and one lottery. The residents are the largest population of online gamblers and a total of 3.3% of the country’s total gambling losses were online in 2011.

Finland, perhaps a country that has had success in controlling the gambling industry operates it in an organized monopolistic space. It is divided into three organizations whose revenues go towards social improvement. The returns from RAY’s goes towards social and healthcare organizations, Veikkalts Oy, ( The Finnish National Lottery) distributes its proceeds to the development of Finnish Science, Arts, Sports, Culture and Youth Works. Lastly, there’s Fintoto Oy whose proceeds go towards horse breeding and horse sports.

Australia with a strong and an ever growing economy, 80% of adults engage in some sort of gambling. It is indeed one of the world’s biggest gambling nations. Gambling wins in Australia are untaxed hence gives individuals an incentive to play. However, as in every coin there’s a flip side and this falls squarely on gambling operators’ shoulders. They are heavily taxed by the government. It derives approximately 10% or more of their taxation revenue from legalized gambling. This habit has its downside in that those that engage in it are mostly those who are disadvantaged and live along the East Coast. Research conducted by Monash University ascertains that due to excessive gambling, a rise in levels of crime, domestic violence and mental illness has been witnessed.

The above only shows the potential that this industry may have on an economy. This industry is in its infancy in Kenya. A lot can be learnt from economies that have thrived having a vibrant gambling environment. A lot of mistakes that have cost the well being of citizens can also be avoided. Watch this space!!